Over 8pc hike in food prices quickens inflation

LAHORE – The inflation has been quickened due to soaring costs of food as well as gas, as food prices, which have a nearly one-third weight in the basket, rose 1.9 per cent MoM and 8.1 per cent YoY during Jan, with non-perishable items’ prices soaring 2 per cent MoM and the price of perishable items climbing 0.7 per cent from a month ago. Experts said that the higher cost of food partly reflects the seasonal effect that is most likely to have pushed food prices up in Jan 2013. They said that the month also witnessed a significant jump in tomatoes (61 per cent MoM) alongside rise in wheat and allied products’ prices that contributed to the overall hike in food prices. Moreover, the cost of gas rose by 6 per cent MoM in Jan 2013, affecting the other categories of the basket. Evident in the transportation category, higher CNG prices inched motor fuel prices up to 7 per cent MoM. Experts from AHL have stated in a note that the hikes in inflation are making one dubious whether the 9.5 per cent target govt for FY13 will be achieved. Furthermore, whatever role low interest rates may have played in helping the economy to stabilize during 1HFY13, it now seems the economy is on the lookout for inflation to come roaring back. If consumer prices continue unimpeded, the possibility for an interest rate reversal towards the end of the FY13 will certainly rise. However, they rule out any sharp pullback in inflation in the next 4-5 months provided oil and other commodity prices stay within a manageable range. Thus, they expect that inflation will stay around 9 per cent for FY13.According to data, the headline inflation numbers came on the higher side with no big surprise clocking in at 8.07 per cent YoY for the month of Jan 2013. After staying low for last three months, consumer prices rose as chilly weather conditions boosted the cost of food items and higher gas prices affected the transportation costs, according to data released by PBS. The consumer price index (CPI) climbed 1.7 per cent MoM, taking the 7MFY13 average to 8.28 per cent YoY. Moreover, both non-food non-energy CPI (Core NFNE) and trimmed inflation accelerated 1.2 per cent and 1 per cent MoM in Jan’13, respectively, to 9.9 per cent in Jan 2013. On the other hand; SPI inflation increased 9.2 per cent YoY, marking a rise of 1.9 per cent on monthly basis. The wholesale index, too, jumped on YoY basis to 8.6 per cent YoY in Jan in comparison with 9.6 per cent a month earlier, reflecting a 1.2 per cent MoM increase. Conservatively, for the next monetary policy of Feb’13, it is expected the central bank will go with the status quo on policy rate due to currency risk (high IMF repayments in Feb-13 onwards) and subsequent inflationary risks that may prevail amid political transition, setting aside rising govt inflationary borrowing. They expect status quo on the policy rate though inflation is still within the manageable parameters and current account stands in surplus. However, forward-looking approach on inflation and external account merits a status quo than a rate cut at the moment.